should we be worrying about debt?

[*lisa simpson*]

Bankruptcies rise to new record

The number of people declared insolvent in England and Wales in the third quarter of 2005 has hit a record high. Department of Trade & Industry figures showed 17,562 personal insolvency cases, up 46% on a year ago, including 12,043 bankruptcies.

The DTI said there was no specific reason for the rise, which has now gone on for seven quarters in a row. However, insolvency experts say it reflects the higher level of debt that has been taken on by the public.

The rising trend brings to 60,102 the total number of individual insolvencies during the last 12 months.

Of these, the sharpest increase has been seen in the voluntary procedure called the Individual Voluntary Arrangement. Their number has nearly doubled in the past year, with 5,519 people choosing this route to insolvency in the third quarter.

Since a change in the law in 2004 it has become possible for bankrupts to be discharged from their bankruptcy after just one year.

It has been widely suspected that this has encouraged some people to get rid of their debts this way.

However a spokeswoman for the DTI denied this was the main reason. She said it could be "peoples' circumstances, attitudes to debt or the availability of credit".

is debt contributing to the number of bankruptcies? is it ok for people to run up massive debts and then just file for insolvency knowing that after a year they can start again with a clean slate? although, obviously, having been bankrupt would mean they wouldn't necessarily get an easy time of it trying to get back on their feet. more to the point, is it right for the banking world to keep dishing out credit, when this situation is apparently running parallel? how can the situation be changed? it must all link in to work and so forth, but i'm sure not all debt-carriers are working, so what can be done?

or is it less of a problem than everyone seems to think?

[Amanda]

I'd say yes - I'm particularly risk adverse but theres far too much credit available out there (and with too few restrcitions and cripling interest rates), you can I guess try and regulate the industry more but the biggest problem seems to be the whole debt culture we've got into - so few people save these days for things its just borrow and buy. Which I guess connects through to no-one saving in general and then you get a pensions crisis too as everyones living longer and theres no way people can just rely on a state pension these days.

I mean yeah theres always gonna be a level of debt and there are in many cases legitimate reasons why people end up in trouble but there does seem to be a lack of general financial responsibilty by the lenders and borrowers.

As for insolvencys I think the new legislation has got a lot to do with it as I think some people would now find it almost beneficial to declare bankruptcy when they get into a high debt situation; obviously though its still a pretty grim position to be in having to do that. Plus they were saying early in the year they were still gonna chase for people homes and things for bankruptcies going back up to ten years (so well beyond the then three years).

[generationterrorist81]

On the one hand, a friend of mine told me that banks aren't stupid and wouldn't continue to lend money if they thought that people couldn't pay it back (eventually).

On the other, I think rising debt is something to worry about, as people are less likely to spend once they start feeling the pinch, and that would lead to a recession.

My business and economics are rusty but I don't think we should be too worried as yet. The bottom line as far as I am concerned is that most people that wind up with massive debts have done so of their own accord. Most sensible people have debts that are perfectly manageable or none at all.

[*lisa simpson*]

most people that wind up with massive debts have done so of their own accord. Most sensible people have debts that are perfectly manageable or none at all.

and that is what i think is the problem.

sensible people, and i know many of them, will try to avoid getting into debt as much as possible. i know people for whom the idea of debt is the worst thing in the world, they will go without food before borrowing, even from friends who are more flexible than banks.

the problem is, some people aren't sensible, and they see all these invitations to effectively be able to spend more money as just that, invitations. they forget to think of the consequences and therefore get more into debt.

and while it's reasonable to say this is of their own accord, banks/lenders should surely take some responsibility? if someone borrows frequently and keeps asking for more, shouldn't the bank put their foot down? if someone keeps extending their overdraft or credit limite etc, the bank should realise that the person is getting more into debt and a growing overdraft is likely to make paying credit back more difficult. and yet, i've had experience of banks extending overdrafts with no questions, ditto credit limits, and then offering a loan to clear the credit. so, they offer to get rid of the debt in exchange for another, larger, more long term debt.

[Marcellin Caillou]

On the one hand, a friend of mine told me that banks aren't stupid and wouldn't continue to lend money if they thought that people couldn't pay it back (eventually).Whilst not disagreeing with your friend, I think that the banks can afford to drop a LOT of money through borrowers defaulting on payments, they make HUGE profits.

I quite like the French system, which whilst a bit of a nanny state, ensures that getting into deep debt is difficult. For example you can only spend up to a third of your salary on housing (mortgage or renting). This worked fine until the number of foreign buyers started to hike the price of property up and the introduction of the Euro also put prices up so that the lower paid could no longer afford a small studio. Our place has gone from €230k to €350k in 18 months!!!!!!!!!!! Another thing is that when you apply for a loan or credit card they check what your salary is. And lastly going overdrawn is not a good idea, 'coz you can have the banks breathing down your neck and they can close the account and make you bankrupt (I'm simplifying).

When I was in the UK I had a credit line of £90,000 on my credit cards and debts of up to £40,000 at one stage (I was such a credit card whore). Here I only have one credit card and it's a UK one for purchases in pounds and it is always paid off.

In effect people in the UK seem to be spending the profit of the rise in value of their properties. Enjoy your retirements folks, not!

[*lisa simpson*]

When I was in the UK I had a credit line of £90,000 on my credit cards and debts of up to £40,000 at one stage (I was such a credit card whore). Here I only have one credit card and it's a UK one for purchases in pounds and it is always paid off.

In effect people in the UK seem to be spending the profit of the rise in value of their properties. Enjoy your retirements folks, not!

the french idea does seem good. i'm not sure i'd even agree it's nanny state-ing, because if the banks have to check all your income details first, it's just so as to protect your, and their, interests - is it anything to do with the state? are the banks there not private enterprises? it would be no different to normal business - who would go into business with a company that had a high risk factor?

as for the debt levels - i know someone who was 45k out at the age of 29, which is just ridiculous. i thought i was bad with about 5k debts, but those are paid off now, thankfully. my credit card is usually paid off within the month now too.

and of course, now, most people are in debt from the off, due to student loans. and then they get into more debt and end up screwed by the time they reitre.

[Marcellin Caillou]

is it anything to do with the state? are the banks there not private enterprises?Yes banks are private but the Banque de France has overall control. When we applied for a mortgage here, the Notaire checked our salaries and told us exactly how much we could borrow: there are tables issued by the state. We didn't borrow that much 'coz even after we paid off our debts in the UK we had made a large profit on our house in the UK. (260%) :mrgreen: It can work in the UK but you need to downgrade or leave the country to make a profit.

[*lisa simpson*]

Yes banks are private but the Banque de France has overall control. When we applied for a mortgage here, the Notaire checked our salaries and told us exactly how much we could borrow: there are tables issued by the state. We didn't borrow that much 'coz even after we paid off our debts in the UK we had made a large profit on our house in the UK. (260%) :mrgreen: It can work in the UK but you need to downgrade or leave the country to make a profit.

ah, i think my rents had a similar thing, they wanted to build something extra to their house in ardeche, and the entire village was involved and the mairie and so on. i'm not a nanny statist but i think the french are quite good on that kind of thing. here, they try so hard not to offend that rules get bent and everything ends up a mess.

[Marcellin Caillou]

ah, i think my rents had a similar thing, they wanted to build something extra to their house in ardeche, and the entire village was involved and the mairie and so on. i'm not a nanny statist but i think the french are quite good on that kind of thing. here, they try so hard not to offend that rules get bent and everything ends up a mess.Something that is really cool, not, is that on the day of completion the mairie can stand in and say 'we want that property' and so you lose the place. You get all your deposit back but still...

[*lisa simpson*]

Something that is really cool, not, is that on the day of completion the mairie can stand in and say 'we want that property' and so you lose the place. You get all your deposit back but still...

really? but there's no gazumping allowed is there?

[Marcellin Caillou]

Nope, the buyer has to stump up money very early in the transaction to prove you are serious and then there is a document draughted which stipulates reason for pulling out. The vendor can pull out but would need to pay the buyer to do so. Stops gazumping.

[blackmet]

Ack. Debt sucks, trust me.

$7,500 on credit cards, $10,000 when all will be set and done in student loans, and $4,000 or so more to pay on my car.

A lot of it has been necessary: I had to get the student loans, because I couldn't finish school without them, and my old car was just about ready to die, so I had to get a new(er) one. There's also $1,200 I threw on the credit cards for a medical bill I had to pay, books for college, car repairs and stuff...I'd say maybe $5,000 total of that debt was unnecessary. And, yes, that's still too much, but I'm getting better about my spending. :good:

And I have friends with even more debt than I do...fell thru the cracks of our college financial aid system (not poor enough to have it paid for, not rich enough for parents to pay for it), so it ended up being paid for via Visa. I almost did it once or twice myself, but managed to scrape together enough cash in time to atleast just be able to toss it on my green Amex (must be paid off every month) and not have interest payments.

In the U.S., laws have just been passed making it tougher to file bankruptcy, which I SORT OF agree with. Basically, it states that people with an income over the median for their state who have the ability to pay even $100 a month towards their debts must pay off atleast part of their debts. I think you should still be able to file fairly easily if there's a major medical emergency you can't pay for, you become disabled, a hurricane destroys your house, or whatever.

BUT, if you're just a dumbass, whom, like a couple families I read about in the paper, ended up racking up $100,000 in credit card debt just due to stupidity and HAVING to send their kids to private school (despite making an income that would never allow you to do those things); then, yeah, you should have to pay. MY interest rates shouldn't be higher because of YOUR stupidity.

What I DO disagree with is how all credit card companies were forced to double the amount of their minimum payments. I almost always pay atleast 2 or 3X the minimum on my cards, but if things are really tight, I will pay just the minimum for a month until I get back on my feet. Now the minimum is a lot higher, which means it may be tougher for me to do that.

[generationterrorist81]

and that is what i think is the problem.

sensible people, and i know many of them, will try to avoid getting into debt as much as possible. i know people for whom the idea of debt is the worst thing in the world, they will go without food before borrowing, even from friends who are more flexible than banks.

the problem is, some people aren't sensible, and they see all these invitations to effectively be able to spend more money as just that, invitations. they forget to think of the consequences and therefore get more into debt.

and while it's reasonable to say this is of their own accord, banks/lenders should surely take some responsibility? if someone borrows frequently and keeps asking for more, shouldn't the bank put their foot down? if someone keeps extending their overdraft or credit limite etc, the bank should realise that the person is getting more into debt and a growing overdraft is likely to make paying credit back more difficult. and yet, i've had experience of banks extending overdrafts with no questions, ditto credit limits, and then offering a loan to clear the credit. so, they offer to get rid of the debt in exchange for another, larger, more long term debt.


Well, banks should take responsibility and put their foot down, but they won't, because they profit from the interest that accumulates on the debt itself. That's why debt can spiral out of control so easily if one doesn't be careful how they use their money. That's also why they're less likely to lend to people that don't need money - to illustrate, I was once turned down for a Topman store card, that works on a credit basis, even though I've never once overdrawn my bank account.

I'd like to think that the government will force regulation onto the banks to stop people from getting into too much trouble, but I don't see this as a likelihood anytime soon. I don't agree with the ethics of a lot of business practises, but there's not a lot we can really do about it except make sure we don't spend beyond our means.

[generationterrorist81]

Whilst not disagreeing with your friend, I think that the banks can afford to drop a LOT of money through borrowers defaulting on payments, they make HUGE profits.

I quite like the French system, which whilst a bit of a nanny state, ensures that getting into deep debt is difficult. For example you can only spend up to a third of your salary on housing (mortgage or renting). This worked fine until the number of foreign buyers started to hike the price of property up and the introduction of the Euro also put prices up so that the lower paid could no longer afford a small studio. Our place has gone from €230k to €350k in 18 months!!!!!!!!!!! Another thing is that when you apply for a loan or credit card they check what your salary is. And lastly going overdrawn is not a good idea, 'coz you can have the banks breathing down your neck and they can close the account and make you bankrupt (I'm simplifying).

When I was in the UK I had a credit line of £90,000 on my credit cards and debts of up to £40,000 at one stage (I was such a credit card whore). Here I only have one credit card and it's a UK one for purchases in pounds and it is always paid off.

In effect people in the UK seem to be spending the profit of the rise in value of their properties. Enjoy your retirements folks, not!

That seems a relatively common sense policy, albeit a bit too tight in one or two areas. But Britain doesn't work on common sense, this is rip-off island and everyone is just trying to squeeze as much money out of people as possible, and that includes banks. Which is why we won't see a similar policy here for quite some time I'd imagine.

I don't generally like the way the economy works full-stop, but there's nothing we can do about it. It's not going to change while people in high places have a vested interest in keeping things the way they are.

[*lisa simpson*]

Well, banks should take responsibility and put their foot down, but they won't, because they profit from the interest that accumulates on the debt itself. That's why debt can spiral out of control so easily if one doesn't be careful how they use their money. That's also why they're less likely to lend to people that don't need money - to illustrate, I was once turned down for a Topman store card, that works on a credit basis, even though I've never once overdrawn my bank account.

I'd like to think that the government will force regulation onto the banks to stop people from getting into too much trouble, but I don't see this as a likelihood anytime soon. I don't agree with the ethics of a lot of business practises, but there's not a lot we can really do about it except make sure we don't spend beyond our means.

yep, i'd agree with that, but on this little island it's hard to stay within one's means - almost everyone i know is in debt of some kind, be it mortgage or credit card or loans. it's really depressing but when prices rise, as do interest rates, and hence banks' profits, what can anyone do?

i'm really lucky because i was in debt, albeit not massively, but my grandparents took that into account when they died so now i'm in the black, but it's unusual for someone at my age. and i think that's the problem - when it's more normal to be in debt than not be, you know something's not quite going right.

[al]

It is bloody stupid the amount of debt we can rack up - I've got an £8000 credit limit on a storecard with a 29% interest rate. I always pay it off but imagine the mess that kind of interest rate can cause.

It is sad the way so many people have got into debt and there have been several reported suicides as a result. Yes we can argue that individuals ought not to spend what they don't earn, but it's so easy to start small and then just have things spiral out of control, especially in such a consumer driven society such as ours. I've got complacent because I earn a good salary but my credit card repayments are now getting stupid so I'm having to rein in - my own fault but at least Im in a position to do something about it. I still know that I could easily get an additional £15000 loan if I wanted to, even if I couldn't pay it off, and I agree that a more responsible lending policy is needed.

[guntrip]

The only "debt" I have is to my mother, who all-told I probably owe about a grand to but she's far too nice to ask for it back. One day I'm going to buy her a new car or something as a payback.

I'm 22 and I don't have a single credit card or store card. I got my first overdraft about six/eight months ago (I was given it, I didn't ask for it!) and I've never once gone into it. I'm thinking of getting a credit card now, if only because it's probably a good idea for me to have some kind of credit rating established, and also because I want to get some furniture for my new flat asap and while I would be able to afford some if I saved for a few months, it's quite depressing living surrounded by boxes (I literally have a bed, a coffee table, two small CD-cases and that's it!) and I'd like to change that.

[*lisa simpson*]

:up: good for you! i think you're quite unusual!

[guntrip]

Yeah, I've always had quite a level head about money... well, let's just say although I'm pretty reckless with money, I know that I have limits to how much I can spend ;)

I think it helps that I've only now secured permanent employment, for the first time in my working life - I've been temping in various places for three years, and nothing teaches you how to manage money better than being paid by the hour...

[*lisa simpson*]

very true, temping really does make it crucial to use brains!

[1985]

The only debt I have now is my mortgage, but it's very easy to get sucked in. I have a friend who is probably £30,000 in debt on unpaid bills and other things - and that's all because of big trouble with her ex. If I was in £30,000 of debt then I wouldn't really feel like living....

It's very difficult to not get into debt, especially with banks offering so many opportunities to borrow from them. I have endured perhaps 2 to 3 years of really scraping along where my rent was probably 75% of my salary - I had to go without CDs, nights out and other things to manage on the money that I had left and what I could earn in overtime. I have managed to save some money now, but it's been heck of a struggle to manage that

For the record, consumer borrowing in the UK is about one trillion pounds right now (although it has recently come down) - the HSBC made £7 billion profit last year....

[*lisa simpson*]

For the record, consumer borrowing in the UK is about one trillion pounds right now (although it has recently come down) - the HSBC made £7 billion profit last year....


that is one of those stats that is shocking but not surprising, if that makes sense?

[generationterrorist81]

that is one of those stats that is shocking but not surprising, if that makes sense?

Perfect sense in a senseless world ;)